Cramdown Push As Mods Sag

Washington-Some of the largest banks scored poorly on the Treasury Department's first progress report on the implementation of the president's loan modification program.

While many banks and their servicers are pledging to do better, the report is giving critics of this voluntary modification effort more ammunition to push again for bankruptcy cramdown legislation.

The monthly "Servicer Performance Report" shows that servicers have placed 235,000 delinquent homeowners into 90-day trial modifications as required under the administration's Home Affordable Modification Program.

The report revealed that after four months HAMP is helping only 9% of delinquent borrowers that might be eligible for modifications that would lower their monthly payments.

Bank of America is conducting modifications on only 4% of its delinquent loans and Wells Fargo has reached 6% of its borrowers that are 60 days or more delinquent.

Wells Fargo pointed out that it has modified more than 240,000 mortgage loans during the first seven months of this year, including 20,220 HAMP trial modifications.

"Now that the program details are largely complete, our company has been accelerating our use of HAMP," said Mike Heid, co-president of Wells Fargo Home Mortgage.

Saxon Mortgage Services ranked highest with 25% of its delinquent loans in 90-day trial modifications, while JPMorgan Chase Bank has a 20% performance ratio with 79,300 loans in trials.

Despite the disparities, Treasury assistant secretary Michael Barr expressed confidence that the modification program is "on track" to meet the Obama administration's three-year goal of modifying 3 million to 4 million loans.

Center for Responsible Lending president Michael Calhoun noted that there were 254,000 foreclosure starts in June, which is more than the total number of trial modifications.

"For over three years, lenders have insisted they can handle this crisis on their own, but the report shows that the time for voluntary action is over," Mr. Calhoun said. CRL has supported bankruptcy changes, sponsored by Sen. Richard Durbin, D-Ill., which would allow judges to modify mortgages.

The banking industry has to do a "much better" job of preventing foreclosures, Sen. Durbin said last week. And the Illinois senator put the industry on notice that he is willing to make another try at passing a bankruptcy cramdown bill if they "don't make real progress in reducing the number of avoidable foreclosures."

But he indicated such a legislative drive is not imminent. "I am afraid it is going to take a lot more misery to move a lot more votes," Sen. Durbin said in a speech at the Center for American Progress in Washington. In April, the Illinois senator saw his bankruptcy cramdown amendment voted down in the Senate by a 45-51 vote.

Nevertheless, the high-ranking Senate Democrat is sending letters to servicers urging them to stop foreclosure proceedings when considering loan modifications.

"I am asking servicers to make a commitment that they avoid scheduling a foreclosure on any homeowner who is actively working in good faith to work out a loan modification that is fair, responsible and sustainable," Sen. Durbin said.

Separately, the GSE regulator reported on the loan modification efforts of Fannie Mae and Freddie Mac.

The Federal Housing Finance Agency said they completed 10,400 loan modifications in May, down nearly 25% from the previous month, as more delinquent loans are being steered into HAMP trials.

Agency officials noted that the completed modifications were conducted under the FHFA's streamlined modification program that was ended in April.

"Completed loan modifications fell for the second consecutive month in May," FHFA said, as the government-sponsored enterprises "continue to focus on implementing the Home Affordable Modification Program."